For Newly Minted M.B.A.s, a Smaller Paycheck Awaits

By

Ruth Simon

Updated Jan. 6, 2013 10:32 p.m. ET

Like many students,
Steve Vonderweidt
hoped that a master's degree in business administration would open doors to a new job with a higher paycheck.

Soaring tuition costs, a weak labor market and a glut of recent graduates are upending the notion that M.B.A.s and other professional degrees are a sure ticket to financial success. WSJ's Ruth Simon reports on the News Hub. Photo: AP Images.

But now, about eight months after receiving his M.B.A. from the University of Louisville, Mr. Vonderweidt, 36 years old, hasn't been able to find a job in the private sector, and continues to work as an administrator at a social-service agency that helps Louisville residents obtain food stamps, health care and other assistance. He is saddled with about $75,000 in student-loan debt—much of it from graduate school.

"It was a really great program," says Mr. Vonderweidt. "But the job part has been atrocious."

Soaring tuition costs, a weak labor market and a glut of recent graduates such as Mr. Vonderweidt are upending the notion that professional degrees like M.B.A.s are a sure ticket to financial success.

The M.B.A.'s lot is partly reflected in starting pay. While available figures vary by schools and employers, recruiters' expected median salary for newly hired M.B.A.s was essentially flat between 2008 and 2011, not adjusting for inflation, according to a survey by the Graduate Management Admission Council.

For graduates with minimal experience—three years or less—median pay was $53,900 in 2012, down 4.6% from 2007-08, according to an analysis conducted for The Wall Street Journal by PayScale.com. Pay fell at 62% of the 186 schools examined.

Even for more seasoned grads the trend is similar, says
Katie Bardaro,
lead economist for PayScale.com. "In general, it seems that M.B.A. pay is either stagnant or falling," she says.

The pressures are greatest for those attending less prestigious schools, says Stanford Business School professor
Paul Oyer,
who studies personnel trends. But even at top programs, some graduates are likely to struggle in today's environment, he says.

Another burdensome issue: a high debt load. Nearly 60% of graduating M.B.A.s said they expected to repay some loans after graduation, according to a 2012 GMAC survey. Among households headed by people with student debt who attended graduate school and are under 35, average student loan debt climbed to $81,758 in 2010 according a Wall Street Journal analysis of Federal Reserve data. That figure is up from $55,594 in 2007.

It is all a far cry from the late 1980s and early 1990s heyday for M.B.A.s, when some companies would hire 100 or more M.B.A.s. It wasn't uncommon to recruit first, and fill actual jobs later.

With total student-loan debt approaching the trillion-dollar mark, WSJ's Jason Bellini deconstructs how we got here and what it all means.

"Some of those companies would hire today barely in the single-digits," says
Mark Peterson,
president of the M.B.A. Career Services Council.

A weak economic climate is only partly to blame for the M.B.A.'s plight. The changing nature of B-school programs, evolving corporate needs—as well as the perceived value of the degree—have all helped dilute the M.B.A.'s allure.

Formerly, the traditional M.B.A. was mainly the product of a full-time, two-year program. But beginning in the early 1990s, many schools created part-time and executive M.B.A. programs, with lower-ranked schools often following in the footsteps of academic leaders. Online degrees also gained in popularity.

As a result, the number of M.B.A. degrees granted has grown faster than the population, says Brooks Holtom, a management professor at Georgetown University's McDonough School of Business.

"An M.B.A. is a club that is now not exclusive," he says. "You should not assume that this less exclusive club is going to confer the same benefits."

Today's global corporate culture amplifies the competition. "We are trying to internationalize our business like everyone else," says
Lee Ashton,
director of international human resources at spirits maker
Brown-Forman
Corp.
With 58% of its business outside the U.S., the Louisville company has stepped up recruiting of M.B.A.s from abroad.

U.S. schools granted a record 126,214 masters degrees in business and administration in the 2010-2011 academic year, a 74% jump from 2000-2001, according to the Department of Education. The M.B.A. march is part of an overall boom in advanced degrees that took on added steam as some recent college graduates and others sought refuge from the recession by pursuing advanced degrees. Tuition and fees for full-time M.B.A. programs has risen 24% over the past three years, according to the main body that accredits U.S. business schools.

It is unclear how many M.B.A.s the market really needs. Recently, more companies have indicated that "they are moving away from an emphasis on M.B.A.s" and are instead hiring more undergraduates at lower salaries that they can then train in-house, says
Camille Kelly,
vice president of employer branding at Universum, a firm that advises companies on how to attract and retain the best employees. Companies, she says, "still will do M.B.A. hiring, but it won't be to the same extent they have in the past."

United Parcel Service
Inc.,
which has a hub in Louisville, puts more emphasis on M.B.A.s and other grad-school types than it did five years ago. Still, know-how trumps all. "We're always going to look at the work experience first and how has that been enhanced through any advanced degree," says spokeswoman
Susan Rosenberg.

The University of Louisville illustrates how some M.B.A. programs have struggled to remain attractive, and relevant, in this rocky environment.

R. Charles Moyer,
dean of the College of Business, was recruited away from Wake Forest University in 2005 with a mandate to ramp up the Louisville M.B.A. program. Ten local business leaders had pledged to kick in roughly $10,000 each for five years toward his $350,000 paycheck.

Louisville "was growing at that time," recalls
C. Edward Glasscock,
a local attorney who helped spearhead the fundraising effort. "We had to make sure we had graduates to fill the workforce need."

Mr. Moyer tightened admission standards. Also, in 2007, he revamped the school's existing part-time M.B.A. program, made up of students who were pursuing degrees while working. Under the new program, groups of students moved together through classes over a two-year period, which was later shortened to 20 months.

He also added faculty, increased course options and introduced Saturday "enrichment programs" on negotiation skills, ethics and business etiquette. Three years ago, he introduced a full-time M.B.A. aimed at recent college graduates that includes a paid internship with a local employer. Next year, the school will begin another program for students with 12 to 15 years of work experience.

Mr. Moyer acknowledges that the growth in offerings was driven in part by a desire to boost revenues. "When I get a budget cut, I think about starting a new program," he says. "If we can do it really well and generate a lot of money, we can pour it back into our core business, which is undergraduate education."

Louisville now offers full- and part-time M.B.A.s as well as a highly regarded entrepreneurship program that in total enroll roughly 250 students—roughly a 10% increase since Mr. Moyer's arrival. With total tuition of $32,000, a Louisville M.B.A. is still a relative bargain. But the price tag has more than doubled under Mr. Moyer's tenure. Revenues from the M.B.A. programs have increased by more than 250%.

The dean says an M.B.A. degree remains a "terrific investment," though the returns might not be evident for "a year or two."

Indeed, some of the same companies that supported the Louisville M.B.A. program stress that experience, not the degree alone, opens the door to jobs.

Texas Roadhouse
Inc.,
a Louisville-based restaurant chain, donated a $200,000 student lounge to the B-school and has hired several M.B.A. students as interns and employees. But spokesman Travis Doster says restaurant experience carries more weight than an M.B.A. when the chain fills positions at its corporate office.

Nor does an M.B.A. guarantee a pay hike. "I haven't seen an automatic boost for any degree," says
Kevin Stakelum,
director of talent acquisition for
Humana
Inc.,
one of Louisville's largest employers. While an M.B.A. can be valuable, particularly in certain positions, "it's a piece of the entire puzzle."

Casting a wider net remains a challenge. "It's always difficult to get those upper-tier companies to come and recruit," says T.
Vernon Foster,
who oversees career services. "Once they do, they are always impressed."

Joshua Sickles,
a 2010 graduate of the part-time program, figures his Louisville M.B.A. helped him land a promotion at UPS that added about $15,000 to his paycheck. "It was an investment in myself," says Mr. Sickles, who borrowed roughly $30,000 for his degree.

Other graduates have found returns to be more elusive. "It definitely did not open up a lot of opportunities right away," says
Matthew Wilson,
29, a 2010 graduate who says having an M.B.A. wasn't a prerequisite for his current position in financial services. "I definitely would do it again," he says. "But I don't think it carries the same weight as it used to."

I recall that when i got my MBA from Columbia in 1965,the USA produced about 6,800 MBAs per year. Everyone had to take a minimum of 20 graduate level courses plus non-credit course on computers , etc. it was a tru, full-time 2-year effort.. Not all the students were razor-sharp, but was an impressive group nonetheless.

The top schools still have high standards but after the top tier, quality can go down pretty fast.. Now with all sorts of dilution taking place, it is no wonder that the "club' is less exclusive. Admissions standards are lower; course requirement and pre-requisites are waived; part-time students are not required to work as hard on each course and the credits required have decreased. In reality, after the top-tier the schools are really granting and M.S. in Business, not a true M.B.A.

That siad, one trend is positive and that is the executive M.B.A., 10-15 years of experience particularly when coupled with a high quality program.

At the end of the day many high quality M.B.A.s become cogs in the wheel of commerce, but contributing ones. They less frequently exhibit entrepreneurail breakthrough skills like certain well-known people who skipped college altogether.

Consider other reasons MBAs might be held at bay in the job market. Depending on the industry, company or specific company operations, MBAs can be deemed as threatening. For instance within the business aviation industry we have company flight operations who reject any advanced degrees and, in general, any philosophy that even tends to promote integration with core business processes. Hence we have seen members of our industry expelled from their positions as a result of working on, or attaining, advanced degrees.

One HR consultant painted the picture for me saying that while the execs are busy trying to make the company look good, middle management has been left to make cuts to save money, including deciding whom to lay off. With HR functions leaned and unable to comprehensively monitor middle management, many middle management get rid of, and reject the addition of, anyone they feel is a threat. When middle management does not have an advanced degree, their insecurity can adversely affect their actions.

MBA degrees are not created equally. Getting an MBA from NYU Stern cannot be compared, with a straight-face, with getting an online MBA from Strayer (no disrespect to people choosing the latter option, but that’s not even on the same planet; it’s barely the same universe).

Getting an MBA doesn’t entitle you to anything – even if you pay $100,000 to get it! Business school provides an opportunity. MBA students have to actively and aggressively seize that opportunity to build the relationships, skills and knowledge to leverage in their career.

What happens when the majority of people either have a degree and don't feel it was worth the time and money combine with those haven't committed to getting a a degree? They would probably want their elected representatives to give less or no money to higher education.

Borrowing money to further an education is a form of indentured servitude. The same as borrowing to own a home. Your options are limited. You can't move to take advantage of an opportunity on the other side of the country or the world. Your choices are limited.

For those who say without an education your opportunities are limited, they're not being hired either and they owe a lot more. Shakespeare had it right, "neither a borrower nor a lender be, it dulls the edge of husbandry."

Up until the crash of 2007-08 you took out a house loan without any income or other qualifications. That bubble burst with housing prices going down over 30% because of the oversupply of homes. Now you take out a loan to go to college without having any income or other qualifications over supplying the market for college degrees. Oversupply causes the value of something to go down but this is a concept that politician don't understand. Meanwhile college Presidents making $1M and deans making $300K and colleges building new stadiums, professors being overpaid and getting tenure and putting in 5 hour weeks and colleges buying up the town and not paying property taxes are the beneficiaries of skewed demand by government backed loans that now exceed $1 trillion dollars in outstanding loans burdening newly minted college grads. When we come to our senses we should clawback some of this money from these colleges who have taken advantage of the situation just like the banks did during the housing bubble.

Someone suggested earlier that there be a mandatory "exit exam" upon completion of an MBA program (similar to the BAR exam, CPA exam, Medical Boards, Treasury Enrolled Agent exam, etc.). Has this ever been considered? Would it be feasible to go this route in order to give some across-the-board legitimacy to the MBA degree? The problem is that an MBA is not a professional license but merely an indication of having spent time in a classroom, albeit with widely divergent results based on the school and type of program involved. Such an “exit exam” could be administered through the AACSB (Association to Advance Collegiate Schools of Business).

That would finally put an end to the countless degree mills that churn out meaningless MBAs. Unfortunately, many of the MBA programs in these no-name schools are not even accredited by the AACSB, and these institutions would not even be on the radar screen. In addition, these same degree mills would not be in favor of such an exit exam since it would expose the illegitimacy of their program.

MBA from a third-tier schools makes sense if it's required to progress in your current organization. In such case employer just wants you to have a diploma and does not really care about the school.

I know some people whose employers asked them to get MBA as a condition to be promoted within the company, better yet the firms even paid for the degree. Those people went to local schools outside of top 20 and obtained degree while working - I view it as a smart choice.

But I would not advise on going to such programs full time and hoping for a major career change, most likely you will be up for a huge disappointment.

mark becker Replied: Your stupid.You mean democrat wars like vietnam? you mean gov. flushing money down the toilet with solyndra? No bid, you need to review what clinton did for the housing bubble.Agree to waste in Iraq 800million. Libtarrrd waste, pretty much the rest.---------------------------------------------------

MILTON NABE Replied: George, If working for someone else is so bad, then why don't you go out and start a company? I doubt you have the ability or the drive. It's far easier for you to complain.--------------------------------------------------Yes, but you also thought Saddam had "WMD!", didn't you?

Interesting generalities. Not all MBA degrees are created equal nor are individuals. A degree is great if you attend the right school and do well. Assuming you attend a school recruiters from firms you're interested in visit regularly the recruiters will want to talk to you. If you aren't an excellent student or you don't interview well no degree is going to land you that high paying job you expected.

Wow! Recent MBAs with lots of debt and no job because there is no demand. Looks like supply has exceeded demand by a long way. Another example of how our education system, especially our higher education system, has totally failed our society and our country. However, there is lots of demand for engineering, science and accounting degrees. Virtually NO bachelors graduates with these more technical AND in demand degrees have trouble finding a job. What's wrong with our university and college administrators? Are they stupid? And if a student does not have the aptitude for one of the "in demand" degrees, then the student should be dircted to take up a skill where they can make good money. Welders and machinists make more than a graduating MBA. And don't think these jobs are for men only. Women make the best welders. For goodness sake, even a truck driver in the booming oil and gas fields makes more than most graduating MBAs. And guess what? They aren't required to endure suffocating debt to be trained in these jobs! TOTAL FAILURE OF THE EDUCATION SYSTEM IN THE US!

Having been around now for 75 years, with 50+ spent in industry, both in engineering and management, it is my impression that almost anyone who wishes to can get an MBA. On the other hand, to get a masters in engineering, mathematics, physics, etc., from a reputable school requires a certain amount of native intelligence in addition to perseverance. So while the laws of supply and demand apply in all professional areas, the supply of professional degree holders in the areas mentioned above is limited by those capable of meeting the requirements. Thus I expect the opportunities in these areas will hold up better than the MBA or liberal arts degrees.

If you seek an MBA without the ultimate objective of running your own business then think again. Not questioning that an MBA could enhance your relative earnings power while you are young. But without a true passion for business and responsible risk-taking beyond just getting into a corporate battle ground to get ahead in salary, one is missing the key attribute of the long-term winner in all regards.

His studies will probably pay off in the long run. I graduated from the 2nd ranked economics program in the country and spent 8 months looking for a job. The employment obtained did not require a degree BUT after working a year for this very well known corporation. Employees can move internally. The job scene is just starting to click for me. Recruiters are sending personal emails, people are calling me back, and maybe one day I'll be that CFP managing a couple million of funds. It could happen folks!

After almost fifty years in business I have seen this conundrum play out many times. Unfortunately some people put too much value on a sheepskin and not nearly enough on experience.Give me the person that cut the lawns or babysat as a early teen over the professional student which many MBAs are. There is no substitute for work and business experience and all it's nuances.Earned money and it's management are vastly more educational than any B-school.

At most firms these MBA types are a scourge on productivity. Their requirement for endless meetings, self promotion and the like is destructive to get anything done. Sounds like they should be in government instead.

It is all about supply and demand. If 100 people apply for a job and 75 have MBA's the employer will offer less pay as that is what the market demand demonstrates. A good friend of mine who is 42 and has an MBA just took a job for $44,000. But she only interviewed for three jobs and applied for 12 before landing a job. The MBA was a positive factor. And since her first employer paid for the degree, the economics are not relevant.

Hey, WSJ. You lost me after the second graf. Your lead example is an individual who went $75K in debt to get an MBA from a third-tier school. Just because you can find one of the most extreme examples of useless educational debt doesn't add anything to your story. There are cases where MBAs are useful and cases where they are not. Perhaps if you also interviewed an individual who made a good MBA choice, you might have educated us a little. The first graf in this story illustrates nothing other than that some people are stupid. I see enough examples of that on my own every day.

Entered the workforce post-Vietnam. Worked in pharma industry for then largest company. Made Exec-Director. After 20 years moved to mid-size pharma....then to EU based pharma company. Then, with others, started 3 biotechs: one failed, the other two succeeded being bought by larger biotechs.

Encountered my first MBA in late-70s. They were smart and good business people. Once they got a little experience, they were really good.

Beginning in early-90s, I would say my experience w/ MBAs turned 180 degrees. They were smart. The knew how to model anything in a moment. But, and it is a huge "but", they saw no need for experience. What was on their Excel spreadsheet WAS reality. They were largely useless. Those who worked for consulting companies were the most useless.

The wealthiest people I personally know dropped out of college. One is a regular guest speaker in EE engineering schools to discuss his inventions in circuitry, another is a developer, one started a software company, and another is in insurance. Had any one of these individuals attended a top-tier business school, the school would gladly take credit for their success. This is why professors hate self-employed, self-starting people w/o educations; they expose the reality and limitations of higher education. The students make the school, the school does NOT make the successful individual. But I'm not one of those individuals, and I have degrees from decent 2nd-tier schools, but my degree was really just my "union" card to get an interview. Everything I do in my career, and everything that makes me employable, I learned on the job.

Why do people think graduate degrees are supposed to "payoff" three weeks after graduation??? Guess what? Even with that fresh MBA, or JD, or MS, you still don't know squat! I got a JD in 1994 and the impact on my income didn't really show up until a decade later. Quit your whining----look back on your career in a decade and then decide if it was worth it. What a bunch of want-it-all-now crybabies...

If one wants to understand supply and demand, one should study psychology. There are no Natural Laws governing finance or money. We invented it, we made up the rules to benefit those who have the most of it, and we can change them at any time, unlike things in the Real World.

Yes, but the others get their jobs from the Old Boy network, the REAL reason for going to Yale. They stay conspirators for the rest of their lives, winding up in high places because of their connections, not their abilities.

They laugh at folk who have to work for a living, and pay taxes. As their conservative philosopher put it, "Only Little People pay taxes."

Trevor, I agree! So many think the degree is going to be an instant payoff and it hasn't (it's been that way for some years now). Sure there will be a few who land something fruitful but for the vast majority, they are in the same boat as everyone else. Companies today want people they can train or want someone with experience who has been unemployed and is anxious for anything. Unless you do some "networking", the career many were promised with their MBA, isn't attainable. Many professional certifications have gone this route over the last decade. Experience trumps everything!!!

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